GM Stock Rises After Q3 Earnings Beat and Guidance Raise

General Motors (NYSE: GM) stock is trading sharply higher today after the company reported better-than-expected Q3 earnings and also raised its 2024 guidance. Here are the key takeaways from the legacy automaker’s Q3 earnings.

GM reported revenues of $48.76 billion which easily surpassed the $44.59 billion that analysts were expecting. The company’s EPS came in at $2.96 which was also ahead of the $2.43 that analysts were modelling.

General Motors Reports Better Than Expected Earnings

“In the third quarter, we grew U.S. retail market share with above-average pricing, well-managed inventories, and below-average incentives,” said GM CEO Mary Barra in the shareholder letter. 

She added, “In China, sales improved from the second quarter, and dealer inventory fell sharply. In addition, we remain on track to reach our 2024 EV production and profitability targets.”

She however warned “Competition is fierce, and the regulatory environment will keep getting tougher. That’s why we are focused on optimizing our ICE margins and working to make our EVs profitable on an EBIT basis as quickly as possible.”

Notably, GM has beaten on the bottomline for nine consecutive quarters while its revenues have topped estimates for eight straight quarters. However, despite the impressive performance the company has failed to win over investors who have instead been pivoting to electric vehicle (EV) stocks.

GM Raises Full-Year Guidance

GM also raised its 2024 guidance for the third time this year. The Detroit giant forecasted full-year adjusted pre-tax earnings of between $14 billion and $15 billion, up from the previous guidance of between $13 billion and $15 billion. The company also raised its adjusted automotive free cash flow forecast to between $12.5 billion and $13.5 billion, which is significantly higher than the previous guidance of between $9.5 billion and $11.5 billion.

The guidance raise is all the more encouraging as over the last month, a flurry of automakers including Aston Martin, Volkswagen, and Stellantis have cut their forecast over the last month. However, the US automotive market – which accounts for the bulk of GM’s earnings – has been a different game altogether. Both Ford and GM are posting healthy cash flows, thanks to the profits they are making in the legacy ICE (internal combustion engine) business.

Both Ford and GM are Posting Strong Free Cash Flows

General Motors, which announced a $10 billion accelerated share buyback plan last year authorized yet another $6 billion repurchase plan in June. During Q3, the company spent $1 billion on repurchases, extinguishing around 23 million shares.

Since Q3 2023 when it announced the $10 billion buyback, GM has retired 19% of its outstanding shares. The company expects to finish the current buyback program in October and would repurchase another 25 million shares taking the total share repurchased under the two plans to 250 million.

GM plans to bring down its total share outstanding to around 1 billion by early 2025 for which it would have to repurchase around 120 million more shares. The company reiterated its commitment to reach that goal which would entail a spend of around $5 billion at current prices.

Meanwhile, while both Ford and GM are posting healthy cash flows, the former is spending the money on dividends rather than buybacks. Ford is committed to returning between 40%-50% of its free cash flows to shareholders, and along with the usual quarterly dividend it announced a special dividend of 18 cents per share during its Q4 earnings call earlier this year.

The company announced a supplemental dividend last year also after it sold its stake in EV startup Rivian.

GM is Working on EV Profitability

Both Ford and GM are currently posting losses in the EV business. During the Q3 earnings call, GM said that its US EV market share is approaching 10% and it is the second biggest player after market leader Tesla. The company reiterated its previous forecast of producing and wholesaling 200,000 EVs this year and turning around a variable profit in Q4.

It expects the operating losses in the EV business to narrow by between $2 billion-$4 billion next year. GM however sees its consolidated profits next year as similar to this year which could imply a fall in its ICE profits.

Responding to an analyst question on similar lines, GM CEO Paul Jacobson said, “there are a lot of things that go into that where you know we’re going to see labor cost inflation next year. We’re also going to go into the year as we as we consistently do with pricing assumptions, et cetera, but all of that’s a little bit preliminary just because we’re in the middle of our budget process as we are setting our targets for 2025.”

GM Expects to Turnaround China Business

China has been a particularly tough market for foreign automakers and they have been losing market share to domestic Chinese companies. GM’s China operations also posted a loss in the quarter but the company is not giving up on that market yet.

“We believe that we can turn around the losses, and that’s why we have a series of meetings with our partner to make the hard decisions to get the business to be sustainable and profitable,” said Barra during the earnings call.

That might be easier said than done though as Chinese car buyers have increasingly pivoted to domestic companies at the cost of foreign automakers.

Meanwhile, markets have given a thumbs up to GM’s Q3 earnings and the stock is up almost 10% today. Ford shares are also up amid optimism that the business outlook for legacy automakers is perhaps not as bad as markets fear.